Iceland sales 'have fallen off cliff'

MALCOLM Walker has been consistent. Yes, last December, he sold a £13.5m stake in Iceland, the company he had founded three decades earlier. And yes, Iceland issued a profits warning just one month later - a warning that sent the share price plunging almost 40% from the price at which he had sold.

But no, he insists, he couldn't have guessed when he ordered the share sale that the retailer wouldn't hit profit targets. 'When I sold those shares, I had every reason to believe that we would meet the numbers,' he said later.

The Department of Trade and Industry is carrying out a full-blown investigation into suspicions of insider dealing at Iceland. But Walker - now launching a brand new frozen food venture under the name Cooltrader - has been firm: 'I am 100% confident there will be no problem.'

That's his story and he's going to stick to it. But secret documents obtained by Financial Mail show that Iceland had grave problems well before Walker told broker Charterhouse to start offloading part of his huge personal stake in the group on December 14.

And it was Walker himself who rang the alarm bells. In October, a Walker memo said it had 'not been a good year'. He told colleagues: 'Sales have fallen off a cliff.'

The confidential memo also shows that Walker and his colleagues were retreating from the company's high-profile commitment to organic produce. And it warned that auditors were unhappy about Iceland's use of 'buy one, get one free' promotions - so-called Bogof deals - to boost apparent sales.

Iceland had been a darling of investors. Its shares, which had dipped below 80p in 1997, had recovered steadily. By early last year, Iceland's sales - and its share price - were storming ahead. And in May, Walker announced that the company he built from a single shop in Oswestry, Shropshire, into a multi-billion pound empire straddling Britain, would merge with cash-and-carry chain Booker. Iceland was on a roll.

Last September, the picture of glowing corporate health was reinforced. Walker, as chairman, told investors that Iceland's 770 shops were going great guns. Underlying sales in the six months to June had risen 6%. And in the nine weeks to early September, the increase was 4.5%. Everything looked fine.

That trading statement - on 5 September - was the last piece of firm information about the group's performance for four months. Yes, there was other news: Stuart Rose, previously heading Booker, had become chief executive of the merged group but quit in mid-November to join Burton-to-Top Shop group Arcadia.

His successor, Bill Grimsey from DIY operator Wickes, was announced a month later. But there were no figures about trading. And on 13 December, City analysts were being wined and dined at Iceland's head offices on Deeside. Iceland was 'positive on the group's prospects,' they were told.

There was absolutely no hint that sales were anything but healthy. Analysts came away happy that their forecasts - profits of £130m or more for the 15 months to the following March - looked safe.

Even after news emerged a few days later that Walker had sold roughly half his stake in the company with the shares riding high at 339p, there was scarcely a ripple. The City had no inkling that anything was amiss.